By Chuck Mikolajczak
(Reuters) -U.S. stocks fell on Thursday as news of hotter-than-expected inflation and signs of labor market strength dampened hopes for early interest rate cuts by the Federal Reserve this year.
Equities opened higher and the benchmark S&P 500 briefly surpassed its record closing high of 4,796.56, hit in January 2022, before erasing initial gains.
After ending 2023 with a strong rally, stocks have struggled to find upward momentum, with the S&P 500 slightly negative on the year, as mixed economic data and Fed officials’ comments have led investors to scale back expectations for the timing and size of any rate cuts from the U.S. central bank this year.
The U.S. Labor Department reported that consumer prices rose more than expected in December, with Americans paying more for shelter and healthcare. A separate report showed the number of people filing new claims for unemployment benefits unexpectedly fell last week to 202,000.
“Today’s inflation report reinforces the notion that the market had gotten a little overexcited around the timing of rate cuts,” said Seema Shah, chief global strategist at Principal Asset Management in London.
“These are not bad numbers, but they do show that disinflation progress is still slow and unlikely to be a straight line down to 2%. Yet, while the market was probably over-enthusiastic in its initial expectations, the stars should finally align for Fed cuts – most likely around mid-year.”
Comments from some Fed officials have pushed back on potential rate cuts. On Wednesday, Federal Reserve Bank of New York President John Williams said it was too soon to call for rate cuts as the central bank still had some distance to go on getting inflation back to its 2% target.
Cleveland Fed President Loretta Mester said on Thursday the path of inflation back to the 2% target rate reflected in the latest CPI figures meant it was likely too soon to cut rates in March. Richmond Fed President Tom Barkin said he was still waiting to be convinced the pace of price increases will stabilize and inflation gains have been too narrowly focused on goods.
The Dow Jones Industrial Average fell 64.84 points, or 0.19% , to 37,631.42. The S&P 500 dropped 12.62 points, or 0.25 %, to 4,771.38 and the Nasdaq Composite lost 31.90 points, or 0.21 %, at 14,938.63.
Microsoft briefly overtook Apple as the world’s most valuable company, after the iPhone maker’s shares dropped nearly 4% since the year began due to concerns over falling demand. Microsoft’s shares rose 0.5%, while Apple dipped 0.6%.
Nearly all of the S&P 500’s 11 major sectors declined, with only energy and technology in positive territory.
Crypto stocks such as Coinbase , Bitfarms and Riot Platforms reversed early gains and turned lower. The U.S. securities regulator approved the first U.S.-listed exchange-traded funds (ETF) to track spot bitcoin late on Wednesday.
Citigroup fell 2% after a filing showed the lender booked about $3.8 billion in combined charges and reserves that will erode its fourth-quarter earnings, due to be reported on Friday.
Other banks like JPMorgan Chase lost 0.7%, Bank of America fell 1.7% and Wells Fargo shed 1.6% ahead of their earnings reports on Friday.
Declining issues outnumbered advancers for a 1.9-to-1 ratio on the NYSE and a 2-to-1 ratio on the Nasdaq.
The S&P index recorded 33 new 52-week highs and one new low, while the Nasdaq recorded 84 new highs and 127 new lows.
(Reporting by Chuck Mikolajczak; Editing by Richard Chang)
